An Economic Primer: Types of Goods

[philnotfil]

Economists classify goods based on two questions, can more than one person use the good at the same time and can access to the good be denied. If one person purchasing the good prevents another from purchasing the good, it is said to be rivalrous. If the owners of a good can prevent access to it, the good is said to be excludable.

Applying these two questions, we arrive at four types of goods; private goods, common goods, toll goods (sometimes called club goods), and public goods.

Private goods are those goods which are rivalrous and excludable. A pair of shoes would be an example of a private good. If I am wearing a pair of shoes, no one else can also be wearing them. My ownership of the shoes allows me to control who wears them at any given time.

Common goods are those goods which are rivalrous and non-excludable. If I catch and eat a wild tuna, no one else can eat that tuna. But I cannot prevent others from catching that wild tuna prior to my catching it. It can swim where it likes, and may swim out of the area that I control or have access to.

Toll goods are those goods which are non-rivalrous and excludable. The obvious example here would be a toll bridge. My accessing the bridge does not prevent another person from also having access to the bridge. The owner of the bridge may dictate who does and does not have access to the bridge.

Public goods are those goods which are non-rivalrous and non-excludable. National defense is a public good. Everyone in the nation being defended can benefit from it, No one in the nation being defended can be excluded from that benefit.

The market only works efficiently with private goods. The market underprices common goods, often at zero, and they are overconsumed, often to the point where they are destroyed (the tragedy of the commons). The market generally overprices and underproduces toll goods, until they become congested. The market does not generally provide public goods, the free rider problem indicates that the market price for these is zero.

There are two factors that can complicate these behaviors, congestion and externalities. I’ll write up something on those in a later post (if I get around to it )